Scottish Land Commission 3Rd May 2019

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Submission to Infrastructure Commission for Scotland Scottish Land Commission 3rd May 2019

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Submission to Infrastructure Commission for Scotland Call for Evidence May 2019

For further information on this response contact: David Stewart Scottish Land Commission, Longman House, Longman Road, Inverness, IV1 1SF Tel: 01463 423317 Email [email protected]

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1 Executive Summary

This response sets out ways that better land use, and better engagement with communities on land use, can help to prioritise infrastructure investments and deliver better places. The response also calls for a broader definition of infrastructure that includes land remediation, green infrastructure and support for active travel. In responding to the consultation, we highlight how Public Interest Led Development (PILD) can be a catalyst for change, delivering more value and better places while supporting investment in infrastructure. The response also highlights how PILD and Land Value Capture can help deliver attractive places and support investment in social infrastructure, making places more attractive to live, helping make them economically competitive and supporting inclusive growth. Our response also shares work by the Scottish Land Commission on Vacant and Derelict Land. A process has been developed to prioritise vacant sites for investment – this could be useful in helping to prioritise infrastructure investment both short term and over a longer period. Finally, we highlight approaches developed by the Scottish Land Commission to engage communities in decisions on land use – our Land Rights & Responsibilities statement and our Community Engagement Protocol – which could be adapted to engage communities in discussions and decisions on infrastructure investment.

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2 Background and Introduction

2.1 Land is at the heart of Scotland’s identity, economy and communities. The Scottish Land Commission is working to develop a land use system where the way our land is owned is felt to be fair and productive for individuals, communities and Scotland’s economy.

2.2 The Scottish Land Commission have worked on several themes over the last 18 months to 2 years relevant to the work of the Infrastructure Commission of Scotland. These are

• Land Value Capture uplift to fund infrastructure

• Public Interest Led Development to maximise the benefit from land and improve placemaking on key sites

• Vacant & Derelict Land – work on bringing empty sites back into use that includes a process to prioritise sites for investment

• Land Use – Land Rights & Responsibilities – good practice principles to underpin decisions on land that could be applied to infrastructure investment

• Community Engagement – a Community Engagement Protocol that sets out principles on engagement on land use – the principles could apply to engaging communities on decisions on infrastructure

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3 Detailed Comments

3.1 We broadly support the definition of infrastructure and the main categories set out as infrastructure – transport and utilities, the built environment and housing, and social infrastructure.

3.2 We suggest, however, that the definition should be broadened to include green infrastructure, land remediation and active transport. All these types of infrastructure can play a role in reducing carbon emissions and in creating more attractive, inclusive places that would improve economic competitiveness (by making Scotland an attractive place to live) and increase inclusive growth and social cohesion.

3.3 Infrastructure as a Catalyst for Change in Place.

The Scottish Land Commission has undertaken research on Public Interest Led Development (PILD1). A study found that, where a public authority takes a more proactive role in planning and shaping a development and providing infrastructure up front, then that infrastructure can be a catalyst for change in a place. The best-known example of PILD in Scotland is the regeneration of Dundee Waterfront, where the city council lead the development, setting out plans and funding the provision of infrastructure up front. This planning and investment proved a catalyst for change in the area, creating significant value that would not have been achieved if the council took a more passive role, leaving the development of the area to be led by the market. The benefits of the pro-active approach include creating a more attractive place (enhancing competitiveness) and promoting inclusive growth. There is also scope to create additional value to fund infrastructure.

3.4 Prioritising Investment in Infrastructure – Vacant & Derelict Land.

The consultation raises a question about prioritising investment in infrastructure. The Scottish Land Commission has been leading work on the re-use of Vacant & Derelict Land in Scotland. A Task Force has been set up, with the objective to identify stalled sites that have a significant negative impact on their communities. The group has established criteria to prioritise which sites to invest in from a long list. In addition to creating a tool that can be used to prioritise investment, the Vacant & Derelict Land Task Force is also developing an approach to bring brownfield sites back into use – this would reduce carbon emissions and promote inclusive growth by developing gap sites close to existing infrastructure.

1 Scottish Land Commission (2018) - The Delivery of Public Interest Led Development in Scotland (Tolson & Rintoul) https://landcommission.gov.scot/pub/land-lines-the-delivery-of-public- interest-led-development-in-scotland-a-discussion-paper/

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The Task Force will shortly produce a report on the first phase of its work and the Scottish Land Commission would be glad to share this with the Infrastructure Commission for Scotland. It will also be undertaking a second phase of work looking to bring redevelop several priority sites and record learning on approaches to bringing derelict sites back into productive use. We can share this work with the commission once it is complete.

3.5 Using Land Value Capture to Fund Infrastructure and Support Better Placemaking

Work by the Scottish Land Commission has found that there is a strong public interest justification for pursuing policies that enable more of the uplift in land values created through the planning system to be used to fund enabling infrastructure2. It is important, however, to learn from historic attempts to harness land value uplift and ensure that the value is captured in a way that maintains incentives for landowners to bring forward sites for development3. To be regarded as fair, any new mechanism for land value capture would need to ensure that landowners whose land is acquired through compulsory purchase receive equivalent compensation to the price that they would receive on the open market. One way to achieve this, while capturing more of the uplift in land value to fund infrastructure, would be to use planning policies and obligations to clearly identify the infrastructure required for a site and ensure that this cost is deducted from the market value.

3.6 Engaging with Communities to Prioritise and Direct Infrastructure Investment

A key aspect of the Infrastructure Commission for Scotland’s remit is that it should work in a way which is “Engaging and widely consultative across all of Scotland and civic society.” The Scottish Land Commission has developed a Land Rights & Responsibilities Statement and a Community Engagement Protocol which may be useful in developing an approach that consults with civic society, and with communities, to prioritise investment in infrastructure.

2 Scottish Futures Trust & Scottish Land Commission (2019) Infrastructure Funding Report 3 Scottish Land Commission (2018) An Assessment of Historic Attempts to Capture Land Value Uplift in the UK (Jones et al) https://landcommission.gov.scot/pub/an-assessment-of-historic- attempts-to-capture-land-value-uplift-in-the-uk/

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3.6.1 Land Rights and Responsibilities Statement

The Land Rights & Responsibilities Statement, published by the Scottish Government, underpins the work of the Scottish Land Commission in supporting change and good practice in land ownership and land use. It highlights the importance of transparency and better community engagement in decisions about land – we believe that the principles could be applied to decisions on infrastructure4.

3.6.2 Community Engagement Protocol

The Scottish Land Commission developed a Community Engagement Protocol that should be used by landowners when they are making decisions on land use. The protocol sets out practical advice on how landowners, land managers and communities can work together to make better and fairer decisions about land use, reducing conflicting and assisting innovation5. As with the Land Rights and Responsibilities Statement there is scope for the principles to be applied to decisions on infrastructure.

4 Scottish Government (2017) Land Rights & Responsibilities Statement https://www.gov.scot/publications/scottish-land-rights-responsibilities-statement/ 5 Scottish Land Commission (2019) Community Engagement Decisions Relating to Land https://landcommission.gov.scot/wp-content/uploads/2019/02/SLC-PROTOCOL-1_web- 6.2.19.pdf

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Over the past 18 months the Scottish Land Commission has been exploring the potential of land value capture, re-use of vacant and derelict land and public interest led development to support development and the funding of infrastructure. Key documents that inform the Scottish Land Commission’s evidence to the Infrastructure Commission for Scotland Scottish Land Commission (2018) - The Delivery of Public Interest Led Development in Scotland (Tolson & Rintoul) Scottish Land Commission (2019) Local Authority Land Acquisition in Germany and the Netherlands: Are There Lessons for Scotland? (Crook) Scottish Land Commission (2019) Phase One Report to the Vacant and Derelict Land Task Force, Ryden (to be published shortly)

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Advice to Scottish Ministers on Options for Land Value Uplift Capture Over the past 18 months the SLC has been exploring options for land value uplift capture. The published outputs from this work, which are all available on the SLC website, include: • Jones et al. (2018), An Assessment of Historic Attempts to Capture Land Value Uplift in the UK, SLC published research report; • Toulson and Rintoul (2018), The Delivery of Public Interest Led Development in Scotland, SLC Land Lines Discussion Paper; and • Crook T (2018), Local Authority Land Acquisition in Germany and the Netherlands: Are There Lessons for Scotland? SLC Land Lines Discussion Paper; and • Scottish Futures Trust and Scottish Land Commission (2019), Infrastructure Funding Report, SFT and SLC jointly published research paper. The purpose of this paper is to provide Ministers with initial advice based on this work.

1. Key Points There is a strong public interest justification for pursuing policies that would enable more of the uplift in land values created through the planning system to be used to fund enabling infrastructure but it is imperative that this is done in a way that maintains incentives for landowners to bring land forward for development. History has shown that poorly designed solutions tend to provoke conflict and resistance, reduce the availability of land for development and ultimately limit the supply of new homes. It is also essential that any new mechanism or approach is regarded as fair by all parties and has wide-spread political support. To be regarded as fair any new mechanism for land value capture will need to ensure that landowners whose land is acquired through compulsory purchase receive equivalent compensation to the price they would receive if their land was sold on the open market. Simply introducing new rules to exclude hope value from compensation arrangements without addressing this issue is very unlikely to be regarded as fair and could be incompatible with European Convention of Human Rights (ECHR). One option for achieving financial equivalence between landowners would be to use planning policies and obligations to reduce market value by ensuring that the costs of providing enabling infrastructure are reflected in the prices paid by developers. Existing Section 75 agreements and the new Infrastructure Levy and Masterplan Consent Areas proposed in the Planning Bill could all help to achieve this. To this end it is recommended that: • Ministers commission a national review of policy and practice in relation to developer contributions and seek recommendations that would help improve clarity and consistency of application across the country;

• Proposals to for a new infrastructure levy (included within the in Scotland are implemented;

However, using planning policies to shape land values is likely to be most effective in areas where there is significant value to capture. In many parts of Scotland this is not the case, which suggests a need for a more ambitious approach.

A land pooling approach in which the public sector adopts a proactive approach to place- making, sharing the risks and rewards of development equitably with landowners and the development industry could help to deliver this. A framework for delivering this approach already exists and is consistent with the existing provisions for Masterplan Consent Areas contained within the Planning Bill.

In the longer term there is a need for a more fundamental rethink of Scotland’s speculative and market driven approach to identifying and allocating land for development. Any mechanism to capture publicly created uplifts in land value is more likely to be succeed if it is designed to support a holistic approach to place-making rather than as an independent revenue raising exercise. Such an approach will require the public sector to adopt a more proactive approach to place-making, in which risks and rewards are equitably shared with landowners and the development industry (land value sharing rather than land value capture). This kind of approach would require high levels of trust and confidence between the parties involved, which will take time to develop and cannot be achieved through legislation alone.

Successful approaches to place-making elsewhere (and in the past) have generally been underpinned by the ability to acquire land via compulsory purchase but not necessarily the ability to acquire land at “existing use value”. There are significant risks that introducing changes designed to enable planning authorities to acquire land at existing use value without implementing provisions to ensure financial equivalence between landowners could The purpose of land value capture is to help fund the infrastructure and services needed to deliver good place-making but funding is not the only barrier to infrastructure and infrastructure is not the only barrier to place-making. Good place making has the potential to create value that would not otherwise exist. It is not a zero sum game. Creating an environment in which planning authorities, landowners and the development industry can come together and work collaboratively has the potential provoke conflict and resistance rather than collaboration. A more productive focus would be on how to ensure that the market value of land fully reflects the cost of delivering the

infrastructure and services required to develop it. Policies designed to “capture” land value in an extractive sense are likely to be met by inertia and resistance Place-making is not a zero sum game.

2. Summary • Compulsory purchase at below market value could be acceptable under the ECHR but the greater the discrepancy between market value and the price the state wishes to pay, the stronger the public interest case must be. Policies designed to reduce the gap between existing use value and full market value could help to overcome this. • There is strong evidence that public bodies can do much to shape land values through the clear and consistent application of planning policies. This approach is based on the established principle that developers take account of the cost of planning obligations when deciding what to pay for land. • There is likely to be some scope to improve the implementation of section 75 agreements to ensure the public benefits from this mechanism are maximised. • Financial modelling work undertaken in collaboration with Scottish Futures Trust suggests that the Infrastructure Levy proposed in the Planning Bill is likely to be an efficient approach to capturing uplifts in land values. • Using planning policies to capture uplifts in land values will be most effective in areas of high market demand but in much of Scotland land values are not very high so an alternative approach, in which the public sector takes a much more proactive role in delivery will be required. • This approach will require public agencies to accept a greater share of development risks in return for a higher return: land value sharing rather than land value capture. • This approach will require well-resourced, multi-disciplinary teams to lead delivery and cannot be achieved through legislation alone.

3. Recommendations Based on our work to date the Land Commission recommends that Scottish Ministers: • Acknowledge the need for the public sector to take a more proactive role in initiating and driving forward development in Scotland and recognise the vital role that culture, leadership, risk appetite and skills will play in the delivery of this approach. • commission a national review of policy and practice in relation to developer contributions and seek recommendations that would help improve clarity and consistency of application across the country; • instruct a regular survey of planning authorities to collate data about the volume and value of contributions secured through S.75 agreements (and any new mechanisms) to provide a baseline for future assessment; • note SLC’s intention to work with stakeholders to develop detailed proposals for urban partnership zones and consider using this to inform future regulation required by the Planning Bill to support the implementation of Master Plan Consent areas. • note SLC’s intention to undertake a longer term investigation into the changes that would be required to Scotland’s approach to land-use planning (specifically how land is allocated land for development) that would enable Scotland to move away from the speculative model that currently dominates delivery.

• Works with local authorities and other stakeholders to identify Scotland’s key strategic development opportunities and provide the leadership and support required to establish regionally appropriate partnerships equipped with the necessary skills and resources to assemble, drive forward and deliver these sites.

4. Concepts and Underlying Principles Land value capture is a concept rather than a specific policy objective. The term encompasses a wide range of potential policy mechanisms, all of which are designed to capture a proportion of publicly created uplifts in land value. Publicly created uplifts in land value arise for three reasons: 1) public investment in infrastructure; 2) the granting of planning permission (or the expectation that permission will be granted); and 3) societal factors (e.g. economic growth) resulting in particular locations becoming more desirable to live in. There are three main types of land value capture mechanisms: 1) planning-led mechanisms (such as section 75 agreements and planning levies); 2) fiscal mechanisms (like land value tax); and 3) commercial arrangements (like joint ventures). This paper focuses on planning-led mechanisms but the SLC is also looking at the potential role of land value taxation.

5. Lessons from History The UK has a long history of experimentation with land value capture (see Jones et al., 2018). Early experiments involved attempts to capture the gains from development through direct taxation but these attempts all proved unsuccessful. One of the reasons for this was that these early attempts tended to be very ideologically driven; designed explicitly to capture “unearned” increments in land value. This was an unhelpful starting point, which made it difficult to secure political consensus. In contrast the Land Commission’s work on land value uplift capture is rooted firmly in a desire to find effective ways of utilising publicly created uplifts in land values to help fund the infrastructure needed to support good place making. Framing the policy debate in this way is important, not only because it is more likely to generate consensus, but also because it facilitates a more rounded discussion about how the barriers to successful place-making can be overcome. However, the main reason that early attempts to capture land value uplifts were so short lived was simply that they did not work very well; provoking inertia and resistance rather than increasing development and generally generating less revenue than expected. There are various reasons for this but one was that they tended to rely on ill-conceived and overly complex legislation, which gave rise to damaging unintended side-effects. One of the most important unintended consequence was that taxing development gains removed incentives for landowners to bring land forward for development. This resulted in landowners delaying bringing land to the market in the (well founded) expectation that the legislation would be repealed by the next government. Another important unintended consequence was the creation of two parallel markets for development land in which those who sold land privately received full development value while those whose land was compulsorily acquired received only existing use value. This

was widely regarded as very unfair and led to several high profile cases of serious hardship, which generated significant public pressure for reform. In 1959 new legislation was introduced that entitled landowners whose land was compulsorily acquired to receive full market value. This established the principle of financial equivalence (under which landowners whose land is purchased via compulsory purchased should receive equivalent compensation to what they would receive if their land was sold on the open market), which has prevailed ever since. The key lessons from this experience are that any successful initiative to capture publicly created uplifts in land value must maintain incentives for landowners to bring forward land for development and be regarded as fair by all parties. Initiatives are also much more likely to be successful if they are designed to support a holistic approach to place-making and are not seen as ideologically driven revenue raising exercises.

6. Compensation and the Public Interest There has been a significant focus within the ongoing policy debate about land value capture on whether it would be possible and/or desirable to amend compulsory purchase rules to enable public authorities to acquire land for development at less than current market value1. The rationale behind such proposals is that this would enable public authorities to use any subsequent uplift in land value to help fund investment in the infrastructure and services necessary to bring land forward for development. The logic underpinning these proposals is sound and there is a strong public interest justification for pursuing this line of thinking, but caution is required because a poorly designed solution could simply recreate the unfairness of the 1950s. This not only has the potential to reduce incentives for landowners to bring land forward for development (which would have a knock-on effect on the supply of new housing) but could also contravene the European Convention on Human Rights (ECHR). Compulsory purchase of property is acceptable under the ECHR providing it is in the public interest but legal experts have argued that the greater the discrepancy between the full market value of a piece of land and the price the state is willing to pay, the stronger the public interest case must be. Proving that the public interest is strong enough to justify compulsory acquisition at less than market value in any given case would be challenging and would almost certainly lead to conflict with landowning interests that could defeat the objective of speeding up the delivery of new homes. Part of the solution to this difficulty could be to implement policies that would help to reduce the gap between existing use value and full market value. Rather than seeking to enable local authorities to acquire land at existing use value this approach would instead seek to ensure that the market value of land accurately reflected the infrastructure and servicing costs required to enable development.

1 Existing use value is the value of land in its current use, excluding the value of any potential uplifts that could arise in the future, perhaps as a result of a change in use. Value attributable to the expectation of future uplifts in value (for example when land secures planning permission) is described as hope value.

7. Using Planning Policies to Shape Land Value There is good evidence that much could be done to achieve this by using planning policies to shape land values. The logic behind this approach is simple. When deciding what to pay for land, developers use what is known as a residual valuation model, which involves subtracting the total costs of developing a site from the total revenue that the site is expected to generate from the sale of completed homes to give a “residual”, which is the maximum amount that the developer would be prepared to pay to secure the land. When performing this calculation developers take account of all the costs they will incur in bringing land forward for development, including the cost of any planning obligations taxes or levies. Research evidence looking at the impact of developer contributions in England shows that developers have been very successful in passing the cost of planning obligations back to landowners through lower land prices2. In this way, planning policies can be an effective tool for shaping land values. This approach would involve ensuring development plans are up to date, regularly revised and explicit about what land can and cannot be developed and the value and timing of developer obligations. It would be consistent with the Planning (Scotland) Bill’s aspirations to simplify procedures for adopting and updating plans and introduce an Infrastructure Levy.

S75 Agreements: Making Better Use of Existing Mechanisms Although ostensibly designed to mitigate the impact of proposed development, developer contributions have proved very effective in securing the delivery of affordable housing and other forms of enabling infrastructure and as such are rightly regarded as part of the toolbox for capturing land value uplifts. The longevity of this approach demonstrates that it enjoys broad support but feedback from stakeholders suggests that there are significant variations in how contributions are assessed across the country. This creates uncertainty about the level of contributions that might be expected and when they might be incurred. This uncertainty creates an incentive for developers to pay more for land (to outbid competitors) in the hope that it may subsequently be possible to negotiate a reduced level of contributions with the planning authority. Providing greater clarity and certainty about the level and timing of developer contributions should result in land changing hands for lower prices, leaving more surplus available to contribute to infrastructure and services. Ministers could help to achieve this by commissioning a national review of policy and practice in relation to developer contributions to help improve clarity and consistency of application across the country.

Proposed Infrastructure Levy Although developer contributions play an important role in the delivery of local infrastructure, their ability to contribute to the delivery of strategic infrastructure is

2 Rowley S. & Crook T. (2016), The Incidence and Value of Planning Obligations, in Planning Gain: Providing Infrastructure and Affordable Housing, Wiley Blackwell.

currently limited. Proposals for a new Infrastructure Levy, which is included within the current Planning Bill, has been developed to address this issue. The Infrastructure Levy seeks to capture contributions to strategic infrastructure through a charge triggered when planning consent is granted that would be applied to most development types. It is intended to operate alongside S75 obligations, reflecting the different circumstances where each can be applied. The Land Commission’s work with the Scottish Futures Trust involved a financial modelling exercise in which the Infrastructure Levy was compared with a range of alternative funding options, including the Community Infrastructure Levy (CIL) currently in operation in England. The analysis concluded that the proposed Infrastructure Levy was demonstrably more effective than the CIL in its ability to capture uplifts in land value. While the report noted the need for further work on how the Levy might be implemented, the overall conclusion was that it has the potential to make an important contribution to the suite of funding options that currently exist.

Potential Role for Masterplan Consent Areas Currently, it is not uncommon for Local Development Plans to require largescale development sites to produce site wide masterplans or development briefs. These will generally show the intended location of onsite infrastructure, how road and transport connections will be made, and the phasing of development but generally do not provide information on infrastructure costs. The Planning Bill provides for regulations to be introduced setting out the detail of the MCA process. These regulations could be used to stipulate the information that would be required in an MCA masterplan. This could follow the same general principles as already applied through the local development plan process but require a greater level of detail on costs. If this information were to be provided then existing rules on CPO compensation would require such costs to be taken into account in the land valuation exercise. The effect of this should be to reduce the value of land within a designated MCA to a level that reflects the cost of providing the infrastructure required to develop the site. How close this value might be to “existing use value” is likely to depend to some extent on the inherent development value that the site may have prior to designation as part of a MCA. For land that would be expected to have inherent development value, it would be possible to stipulate that planning permission would only be granted as part of a wider development, i.e. inclusion within the MCA. This would imply that individual piecemeal development would not be supported, meaning that any increase in land value would be directly linked to the designation of the land as part of an MCA. Prohibiting piecemeal development should have the added benefit of encouraging landowners to participate voluntarily in the scheme, which should help to avoid the requirement for CPO in the first place. Similarly it may also encourage landowners to collaborate with each other and proactively bring forward proposals to the public sector. The Land Commission is of the view that the Masterplan Consent Areas proposed within the current Planning Bill has the potential to provide an additional mechanism for using planning policies to proactively shape land values.

Limitations of this Approach Using planning policies to capture uplifts in land value is most effective in areas of relatively high market demand, where development value is high and here is scope for large uplifts to occur. However, development values in much of Scotland are not very high so an exclusively market based approach is unlikely to be sufficient. Achieving Scotland’s place-making ambitions will require a more active approach by the state. Masterplan Consent Areas could be used as a mechanism to facilitate this more active approach but the process of developing a detailed and fully costed masterplan described above would likely require skills that no longer typically reside in most planning departments. While these could be procured from the private sector a more efficient approach might be to develop a collaborative framework that would facilitate collaboration between the public and private sector, enabling both to share in the value created.

8. A More Ambitious Approach: Land Value Sharing In 2018 the Scottish Land Commission published a paper (Tolson and Rintoul, 2018), which made the case for “public interest led development” where public bodies take a lead role in initiating and driving forward major physical development to achieve specific public policy objectives such as housing delivery or regeneration. Typically public interest led development projects involve a public body acquiring and assembling land for development, delivering any required infrastructure and/or land remediation and then playing an active role in planning and coordinating the subsequent development. Delivering this approach would require a much more proactive approach to planning than has been typical in Scotland for many years, but it is not a new idea. The model is often used to deliver major urban development in the Netherlands and Germany and was also used in this country after the Second World War. A public interest led approach involves the state acting as the “patient place investor”, providing the investment and coordination necessary either to make development happen where it would otherwise not do so, or to ensure that development is of a higher quality than it might otherwise be. The key defining feature of a public interest led approach is therefore the outputs of the development process are in some way better (e.g. higher quality, more diverse, faster) than they would have been if the development had been delivered by the market acting alone. This approach would not be a replacement for market activity (successful projects generally involve some kind of partnership between the public and private sectors) but it would require public bodies to accept more of the risks associated with major development. In return, public bodies could reasonably also expect to secure a greater share of the returns to development. This approach could therefore be thought of as “land value sharing” rather than “land value capture”.

Skills and Delivery Embedding a public interest led approach to development is not something that can be achieved through legislation alone. Leadership will be required (at a national and regional level) to identify Scotland’s key strategic development priorities and establish regionally appropriate partnerships to drive forward and deliver them. A crucial factor in the successful delivery of this approach will be the creation of well- resourced, multi-disciplinary teams to lead delivery. Such teams require skills in a variety of areas including finance, land valuation, development economics, property markets and investment promotion. Such skills are often no longer present in local authority planning departments but they can readily be found in the private sector and in other public sector bodies. Delivering the ambitious approach to “land value sharing” envisaged by the Land Commission will require new ways to be found to identify and bring them together.

9. A Framework for Delivery In 2014 the Land Reform Review Group proposed a new framework to support this kind of collaborative approach to development. Then described as “urban partnership zones” the proposals are consistent with the Masterplan Consent Area proposals contained within the current planning bill. The concept is based on the well-established practice of land readjustment or land pooling, which is used in many countries to provide statutory arrangements for landowners to share in the financial benefits of redevelopment in return for sharing some of the risk. The starting point for this approach would involve planning authorities designating an area for major development and entering a joint venture arrangement with a suitable development partner. At this point existing landowners would be offered the choice of either joining the development partnership or selling out to it. By enabling existing land (or property) owners to benefit from the proposed redevelopment (either financially or by taking reserved space in the new scheme) it is envisaged that this approach would encourage voluntary participation and avoid the requirement for compulsory purchase in most circumstances. In so doing this approach would enable the rational self-interest of landowners to be harnessed in pursuit of the public good. It is however likely that some landowners would be unwilling to either sell their land or enter the partnership. To prevent these owners from derailing the scheme, it would be necessary for the MCAs to be underpinned by compulsory purchase arrangements but it is envisaged that this would rarely be required. The objective of this approach would be to create partnerships that add value to the development process and in so doing encourage voluntary participation. Further work would be required to determine the appropriate compensation arrangements under such circumstances, but the Dutch experience of Active Land Policy, which shares many characteristics with the approach outlined above, is likely to be particularly relevant. Under Dutch law, municipalities that acquire land via compulsory

purchase are expected to pay compensation that reflects the market value of un-serviced land in its planned designation, as if no infrastructure investment had taken place.

10. The Need for Longer Term Reform While land pooling has the potential to stimulate an uplift in housing delivery and could support a much needed shift toward a more collaborative approach to the delivery of major development, it is not a panacea. In many ways the current debate around land value capture is merely a reflection of more fundamental concerns about the effects of Scotland’s speculative approach to housing delivery, in which decisions about whether, when and where land comes forward for development are largely left to the market. This speculative model is not the norm everywhere and could be changed but doing this effectively would require fundamental changes to Scotland’s planning system that go significantly beyond what is currently envisaged in the current Planning (Scotland) bill. In taking forward our work in this area the Land Commission therefore intends to work with stakeholders to identify what changes would be required to move beyond this speculative model and create a more proactive model that delivers in the public interest.

11. Amendments to the Planning Bill The Planning Bill contains an amendment relating to the operation of Masterplan Consent Areas that would enable Ministers to make provision for land value capture by compulsory purchase of land. It is understood that the intention of this amendment is to enable planning authorities to acquire land at prices below that for which it currently changes hands so as to enable uplifts in value to be used to help fund the infrastructure needed to support development. While this is recognised as a legitimate aim, as currently drafted the amendment is unlikely to achieve its objective and risks breaching the ECHR. The amendment is unlikely to achieve its aim because it proposes that compensation should be calculated using a formula that would see landowners receive the value of their land excluding the value attributable to the scheme for which the land is acquired plus up to a quarter of the value attributable to the scheme. Under current compensation rules landowners whose land is acquired via compulsory purchase receive none of the value attributable to the scheme. As currently drafted the amendment could therefore result in landowners receiving more compensation than they are currently entitled to. This issue could be resolved by removing sub-section three of the amendment but the amendment may still risk breaching the ECHR because it is not clear how it would address the issue of financial equivalency for landowners who have had their land compulsorily purchased and those who are able to sell their land on the open market. While not irresolvable, addressing this issue will require careful consideration and may not be achievable within the timescales for the current planning bill.